Analysis of Direct Cost

Introduction

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The production of drone navigation system is complicated due to the incurred costs as well as their functionality. In terms of functionality, the increased need for surveillance has raised the demand of drones to boost global security. In most cases, the manufacturers incur both direct and indirect costs of manufacturing the system. This means that the producing company must conduct comprehensive analysis of direct and mandatory costs associated with the system to ensure that the production is not affected. Therefore, this essay focuses on the analysis of the main costs related to the production of VectorCals drone navigation system.

Discussion

The production of VectorCals drone navigation system has different costs that the manufacturing company might face. The main ones are material and labor costs. To start with, some of the materials used to produce the system include the following: the contractors, for instance, use composite materials because of the drones weight standard (SBG Systems, 2016).

First, such materials are light and strong, which enables drones fly at very high altitudes and perform designated functions. Moreover, they increase drones maneuverability in space for surveillance purposes .

Second, metallic and non-metallic parts of the drone cost a lot because of their nature and functionality. Due to manual labor used to acquire the materials mentioned, the costs are considered direct ones incurring during the system production process.

Further, labor cost is another direct cost that the drone manufacturer faces during the production. Since production workers manufacture drone system and receive money for their job, there will be direct and indirect labor costs (Murphy, 2009). For instance, there are different categories of technicians employed, which results in direct labor costs for the manufacturing company. Other employees involved include administrative personnel that insures smooth process workflow. Thus, they will comprise another labor category with their salary being indirect labor cost for the firm.

According to Libby & Libby (2013), the administrators who do not engage in direct production of drones contribute significantly to manufacturing cost article. This means that the manufacturer will also incur indirect labor cost when involving non-technical human resources for the people who work in the background to facilitate of the production process.

The company I work for and VectorCal would assume different direct and indirect costs that are associated with the drone navigation system. For example, my company would supply the parts required for the drone construction. However, this also means that the company will face direct material cost of manufacturing the drone. The administration services that our team of experts has will also contribute to the effectiveness of the drones production while engaging in the indirect labor cost of manufacturing the drones (Murphy, 2009).

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Nevertheless, VectorCal will incur both direct material cost and indirect labor cost. As an example, the company would directly acquire the material needed to manufacture the drone; thus, it would incur direct material cost (Libby & Libby, 2013). In addition, the company would also bear direct labor expenses such as the wages of welders, engineers, production supervisors, equipment operators, and cutters among others. Libby & Libby (2013) noted that some of the indirect labor costs include administrative and consultation costs because they support the manufacturing process.

My firm cannot control these costs easily because we only supply some parts used in drone manufacturing. Other companies also supply related materials and provide consultancy services to production team (Libby & Libby, 2013). Therefore, our cooperation with VectorCal cannot reduce production expenses significantly. Based on existing demand, the company itself has the ability to make decision on the quantity of drones to produce; thus, they control the production from their side.

According to Libby & Libby (2013), the rationale is that the company is directly charged with the production of the entire system. Therefore, it determines the cost. In the both companies, semi-variable costs are incurred (at least from the base-level cost), and they vary from time to time depending on the amount of materials and services offered. Moreover, allocated direct and indirect costs of the drone navigation system are different for my company and VectorCal. Since my firm only gets some supply contracts, the allocated direct and indirect costs vary based on demand and the volume of activities that the company is engaged in. This fact enables VectorCal to determine its own direct, indirect and additional cost (Libby & Libby, 2013). Taking all this into account, we can conclude that the information is helpful as it is used to make financial, competitive and performance forecasts for the company.

Conclusion

In summary, the growing needs for surveillance has increased the demand for drones. Moreover, the cost of drones manufacturing is high due to the nature of materials required to produce such a system. The main costs of producing VectorCals drone consist of material and labor expenses. The material costs are considered to be direct since they will be used right in the production of drones. Unlike material costs, labor ones are both direct and indirect because those are the wages of workers whose services are directly related to the manufacturing process. In addition, other employees facilitate the production of the system through offering administrative services.

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